HOPEWELL JUNCTION, N.Y.--eMagin Corporation, or the “Company” (NYSE MKT:EMAN), a leader in the development, design and manufacture of Active Matrix OLED microdisplays for high resolution imaging products, today announced financial results and corporate highlights for the third quarter ended September 30, 2016.
“While our third quarter was impacted by the previously announced softness in our domestic military business due to lower volumes on maturing programs, we are now beginning to ship under new military programs and expect volumes to increase in 2017,” said President and CEO Andrew G. Sculley. “Additionally, we announced today the formal launch of two consumer products. This is an important step for eMagin as we capitalize on our intellectual property and know how to pursue new, potentially high growth markets. We are pleased that, with our product launch in this new market segment, we were named a 2017 Consumer Electronics Show (“CES”) Innovation Award Honoree in the Digital Imaging product category. Click for Release.
“Importantly, we are in active discussions with multiple Tier One companies who recognize the superior functionality of our industry-leading OLED microdisplays for consumer applications. Progress in these discussions has recently accelerated as we address prototype designs and a path to high volume production.
“The low-power, high resolution, small form factor of our leading OLED microdisplays are finding their way into a larger number of applications and markets compared with just 12 months ago. We continue to see further traction in industrial markets as we received another design win from a leading medical device company who has chosen to integrate our microdisplays into their next generation surgical device. We also continue to see expanding interest for our technology among foreign militaries where advanced night vision and high-resolution avionics applications remain relatively underpenetrated.
“The technology in our new consumer products complements the expertise we have accumulated over the years developing leading solutions for our US military and commercial customers. We are able to enter the market for consumer and industrial night vision systems at what we believe is a disruptive price point which could result in a significantly larger market size than what is available for existing products. Not only are these new markets large, we believe they could provide eMagin with attractive gross profit opportunities over time.
“We have also made enhancements to our organization to better match our resources with future growth opportunities. Our re-aligned sales and marketing team is focused on our key end markets, including commercial/industrial, foreign military and our domestic military business. We recently made several key hires including a Vice President of Business Development who is spearheading our discussions and negotiations with potential Tier One partners and a Vice President of Operations to oversee our yield improvement program as we prepare for higher volumes and a more complex products mix. Also, we have completed the migration of our procurement and finance teams to Hopewell Junction to work hand-in-hand with the production, sales and marketing, business development and R&D groups.”
Q3 Business and Product Highlights
The Company continued to make progress towards its goals of winning new U.S. military programs while expanding its presence in foreign military, commercial and industrial markets.
- Beginning to deliver displays for the Low Rate Initial Production (LRIP) phases of the U.S. Army’s Enhanced Night Vision Goggle III (ENVG III) and Family of Weapon Sight-Individual (FWS-I) programs. Shipments under these programs are expected to accelerate beginning in the fourth quarter 2016 and continuing into 2020.
- Entered into a multi-year agreement with a major European defense company that manufactures thermal weapon sights and goggle systems that continues through 2018 and totals in excess of $3.5 million in display sales.
- Awarded a new production contract for a European military helmet mounted display system for augmented reality training and simulation. This order will provide displays for initial production in 2017 with follow-on orders expected for several years.
- Received an initial order for a military air defense missile system which will be deployed in 19 countries. Production is scheduled to last through 2020, followed by long-term maintenance and support.
- Notified by a major medical device company that eMagin’s HD-plus resolution WUXGA display has been selected for the next generation of surgical equipment. This further establishes eMagin’s presence in the medical device field and follows a large order in the second quarter from another major medical device company.
- Prepared for launch of first two consumer products, BlazeSparkTM and BlazeTorchTM, for night vision. Click for Release.
The Company continued to make improvements in technology and product design.
- The Company is completing qualification of the XGA (1024 x 768) display which is expected to be available in the first quarter of 2017 for consumer and industrial applications that require cost effective medium resolution microdisplays.
- The Company’s direct patterning development work under the Defense Manufacturing, Science and Technology program (Man Tech) progressed during the quarter and is on track for completion in 2017.
- eMagin’s direct patterning technology has generated significant interest from our military and commercial customers. We will be offering direct patterned displays to our military customers in the second half of 2017.
- The Company’s direct patterning production equipment has been upgraded by the equipment manufacturers based on our design changes to provide significant improvements in display performance and higher production volumes. The upgraded equipment has been re-installed during the fourth quarter with fabrication samples expected by the end of the quarter.
- Product development on the 2K x 2K full color RGB microdisplay, eMagin Corporation’s largest microdisplay design, which expands the Company’s product offerings for the consumer and commercial marketplaces, is on schedule to produce engineering samples. Select customers, including the customer with whom we entered into the license agreement in December 2015, will receive samples beginning in December. Associated products are expected to be generally available in the first quarter of 2017.
Third Quarter Results
Revenues for the third quarter of 2016 were $4.3 million, down 20% from the third quarter of 2015.
Product revenues totaled $3.5 million, 24% less than third quarter last year, primarily due to lower volumes from maturing military programs partially offset by a lower average price due to product mix. R&D contract revenues totaled approximately $769 thousand, consistent with the third quarter last year.
Overall gross margin for the third quarter was 30 percent on gross profit of $1.3 million compared to a gross margin of 20 percent on gross profit of $1.1 million in the same quarter last year. The increased gross margin for the quarter reflects a favorable impact of higher production volumes as inventory is built for the consumer products launch.
Operating expenses for the third quarter of 2016, including R&D expenses, increased to $3.7 million from $3.3 million in the third quarter of 2015. Third quarter operating expenses reflect higher spending on the development and marketing of our consumer products as well as the costs associated with the consolidation of the Company’s finance and procurement functions.
Operating loss for the third quarter increased to $2.4 million from a loss of $2.2 million in the third quarter last year. Net loss for third quarter of 2016 increased to $2.4 million, or $0.08 per basic and diluted share, from a loss of $2.2 million, or $0.09 per basic and diluted share, in the third quarter of 2015.
At September 30, 2016, the Company had approximately $6.9 million of cash and cash equivalents compared to $9.3 million of cash and cash equivalents at December 31, 2015. During the quarter we increased our R&D investment and began to build inventory for our consumer product launch.
“We remain focused on our milestone approach to driving shareholder value for the remainder of 2016 and into 2017. While not reflected in our financial performance during the quarter, we are making considerable strategic business progress as we advance our microdisplay technology, expand our presence in our existing markets and penetrate new ones. We believe eMagin is the only Company whose products can meet the brightness and resolution requirements for high-pixel density displays that these markets demand,” continued Mr. Sculley.
The Company remains focused on the following objectives to drive shareholder value:
- Advance our product development discussions with Tier One companies to incorporate OLED technology into their next generation products,
- Further penetrate high growth commercial/industrial markets including medical devices and other vertical markets where integration of our OLED microdisplays and optics technology advances product development and adoption,
- Expand our presence in existing and future major military programs and overall customer count in domestic and international military markets,
- Launch new products focused on the consumer market which offer high performance and broad appeal at an attractive price,
- Advance discussions with high volume production partners to utilize our leading production and process technologies, and
- Continue our progress in manufacturing improvements including yield enhancement and production capacity expansion.
“We look forward to updating you on our progress,” concluded Mr. Sculley.
Conference Call Information
Full results will be published in the Company’s 10-Q report for the third quarter ended September 30, 2016, expected to be filed on November 14th, and will also be available via the Company’s website, www.emagin.com. A conference call and live webcast will begin today at 9:00 am ET. An archive of the webcast will be available one hour after the live call through December 12, 2016. To access the live webcast or archive, please visit the Company’s website at ir.emagin.com or www.earnings.com.
About eMagin Corporation
A leader in OLED microdisplay technology, OLED microdisplay manufacturing know-how and mobile display systems, eMagin manufactures high-resolution OLED microdisplays and integrates them with magnifying optics to deliver virtual images comparable to large-screen computer and television displays in portable, low-power, lightweight personal displays. eMagin’s microdisplays provide near-eye imagery in a variety of products from military, industrial, medical and consumer OEMs. More information about eMagin is available at www.emagin.com.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including those regarding eMagin Corporation’s expectations, intentions, strategies and beliefs pertaining to future events or future financial performance. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors, including those described in the Company’s most recent filings with the SEC. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved. The business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in forward-looking statements. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements.
Non-GAAP Financial Measures
To supplement the Company’s consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization, and non-cash compensation expense (“Adjusted EBITDA”). The Company’s management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company’s historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financial statements. Management believes that these adjusted measures reflect the essential operating activities of the Company. A reconciliation of non-GAAP financial information appears below.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|Cash and cash equivalents||$||6,879||$||9,273|
|Accounts receivable, net||2,476||3,508|
|Unbilled accounts receivable||1,163||1,445|
|Prepaid expenses and other current assets||977||489|
|Total current assets||18,522||18,616|
|Equipment, furniture and leasehold improvements, net||8,953||9,131|
|Intangibles and other assets||296||336|
|LIABILITIES AND SHAREHOLDERS’ EQUITY|
|Other accrued expenses||748||1,193|
|Other current liabilities||415||602|
|Total current liabilities||3,956||4,677|
|Commitments and contingencies|
|Preferred stock, $.001 par value: authorized 10,000,000 shares:|
|Series B Convertible Preferred stock, (liquidation preference of $5,659,000) stated value $1,000 per share, $.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of September 30, 2016 and December 31, 2015||—||—|
|Common stock, $.001 par value: authorized 200,000,000 shares, issued 31,784,730 shares as of September 30, 2016 and 29,550,170 shares as December 31, 2015||32||30|
|Additional paid-in capital||239,802||234,814|
|Treasury stock, 162,066 shares as of September 30, 2016 and December 31, 2015||(500||)||(500||)|
|Total shareholders’ equity||23,815||23,406|
|Total liabilities and shareholders’ equity||$||27,771||$||28,083|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|Three Months Ended
|Nine Months Ended
|Total revenues, net||4,305||5,405||16,839||18,428|
|Cost of revenues:|
|Total cost of revenues||3,023||4,299||10,887||12,354|
|Research and development||1,666||1,151||4,468||2,983|
|Selling, general and administrative||2,041||2,183||6,044||5,050|
|Total operating expenses||3,707||3,334||10,512||8,033|
|Loss from operations||(2,425||)||(2,228||)||(4,560||)||(1,959||)|
|Other income (expense):|
|Interest expense, net||(8||)||(11||)||(28||)||(32||)|
|Other income, net||4||5||8||11|
|Total other income (expense), net||(4||)||(6||)||(20||)||(21||)|
|Loss before provision for income taxes||(2,429||)||(2,234||)||(4,580||)||(1,980||)|
|Provision for income taxes||(1||)||
|Loss per share, basic||$||(0.08||)||$||(0.09||)||$||(0.15||)||$||(0.08||)|
|Loss per share, diluted||$||(0.08||)||$||(0.09||)||$||(0.15||)||$||(0.08||)|
|Weighted average number of shares outstanding:|
|Three Months Ended
|Nine Months Ended
|Depreciation and amortization expense||400||410||1,214||1,113|
|Provision for income taxes||1||-||1||-|